Pension options for expats as retailers go bust
British expats have to weigh up their pension options if they have funds with a British high street retailer.
Two big high street and retail park brands have collapsed into administration this week, joining a list of well-known names that have disappeared over recent years
British Home Stores has a £571 million pension black hole and 20,000 members who can expect to receive reduced retirement incomes.
Austin Reed, marketed as a classy tailor, has 155 stores and almost 1,200 staff has also called in the liquidators after profits slumped. The firm blames the move on difficult trading conditions and increasing competition online.
Both firms have staff in final salary pensions, but most are in direct contribution schemes.
So what should expats do if they have a pension with a troubled retailer?
Switching to a QROPS
Transferring the fund to a Qualifying Recognised Overseas Pension Scheme (QROPS) is one option, but not necessarily available to everyone.
Deciding if a QROPS is the right place to switch the money comes down to a transfer value analysis (TVA).
A TVA will list the current pension value and any benefits, such as death in service cover, guaranteed annuity rates or payments to a widow which come with a final salary scheme.
Final salary pensions generally pay two-thirds of average income over the last three years of service as pension income.
It’s doubtful if switching the pot to a QROPS will retain these benefits.
However, if the scheme goes into pension protection – which means the retirement payments are safeguarded in a government-backed Pension Protection Fund – the benefits are reduced.
The level of benefit paid by direct contribution pensions rely on the performance of the fund’s underlying investments.
These payments are also reduced if the scheme goes into PPF safe custody.
Move quickly to avoid transfer freeze
Under PPF rules, different incomes are paid if the member is retired, retired early or still working.
Those that have already retired can expect to receive the same level of income if the scheme goes into custody.
Workers that retired early or have yet to retire can expect to see a 10% drop in payments made from the pension.
The PPF also restricts pension transfers when a scheme is under assessment for taking into custody and once the scheme is under protection.
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